In April 2020 I updated you on the position that the Land Bank (“the Bank”) found itself in. In line with the commitment to keeping you informed on this issue, please take the time to read this important update outlining some new developments. As ever, UNIGRO remains committed to ensuring it is doing all it can to ensure our customers’ needs are addressed, even in tough situations.
You may recall that on 21 January 2020 Moody’s Investor Service (“Moody’s”) announced the downgrade of the Bank’s issuer rating from Baa3 to Ba1, and its long-term national scale issuer rating from Aa1 to Aa3. Following Moody’s subsequent downgrade of South Africa’s sovereign credit rating on 27 March 2020, another downward rating adjustment was made to all state-owned entities, including the Land Bank, meaning that the Bank’s issuer rating was downgraded again from Ba1 to Ba2.
As I explained previously, these events had a significant impact on the liquidity position (cash flow) of the Bank, meaning it was not able to meet immediate obligations to settle a repayment under the terms of a revolving credit facility with one of its lenders. The non-payment constituted a default. At the time, the Bank indicated that it was in consultation with the lender concerned to negotiate a waiver and an extension of the repayment date. These consultations are ongoing and have not to our knowledge been finalised.
I also said at the time that any potential default could prevent the Bank from raising funding. The Land Bank’s inability to raise funding would make it difficult for it to meet its disbursement obligations under a Service Level Agreement. This in turn could negatively impact on UNIGRO’s ability to provide liquidity to farmers through our loan agreements.
Because UNIGRO and the Bank have had a significant partnership in place through the Service Level Agreement since 2011, we have held several meetings with the Bank both before this situation developed and throughout the crisis, and we remain in constant communication with key stakeholders.
As far as UNIGRO is aware, the R3 billion injection approved by Government has unfortunately not yet materialised. As the situation remains unremedied by both the Bank and by Government, what I warned against has now happened, with an unfortunate knock-on effect on UNIGRO and potentially our ability to lend fully to customers.
We have therefore proactively started a process of sourcing alternative funding and are in the process of securing a maximum of R2 billion in short-term finance, R7 billion in longer-term finance as well as additional short-term syndicated and other funding for facilities to try to mitigate this crisis.
UNIGRO will further ensure that going forward, even if the Bank receives the R3 billion in funding from Government, our own funding lines are diversified to limit risk to our customers. However, due to the size of these funding lines, and in the current economic climate, negotiations are taking a little longer than expected and this in turn means that UNIGRO disbursements to farmers could be at a reduced rate until such time as liquidity is restored, and the Land Bank is able to meet its commitments under our Service Level Agreement. We ask for your understanding in this regard, and expect that the new secured lines of funding will be in place by the end of the year.
In the interim. I urge you to please remain in contact with your relationship manager, as things can change at very short notice in this climate of uncertainty.
Finally, thank you for your continued support of UNIGRO and the AFGRI Group. Please liaise with your relationship manager for updates, although as soon as we have further clarity on developments with regards to the Bank, I will communicate with you again.
Together we will make it through this unprecedented time for our area and the country.
Managing Director: UNIGRO